Asia Travel Sdn Bhd (ATSB) is an expanding tour agency in Malaysia offering group tours covering Malaysia and Germany. Responding to the need for some form of presence in Germany, ATSB intends to station an employee as its liaison representative in each of the four most popular tourist destinations in Germany. The duties of these liaison representatives will be: - to liaise with the local tour guides who lead tourist groups from Malaysia; - to continually source good local tours; and - to act as contact points, enter into tour contracts for ATSB and to finalise arrangements for tourists from Germany who wish to join tours in Malaysia.

ATSB does not maintain any office in Germany as the liaison representatives merely occupy and operate a Malaysia desk in the office of an associated Germany tour agency. ATSB pays the basic salary of the four liaison representatives into their bank accounts in Malaysia. It also pays an overseas living allowance to each of them into their bank accounts in Germany.

There is a double taxation agreement between Malaysia and Germany based on the generally prevailing concepts in accordance with the OECD model.

REQUIRED:

(a) Justify whether Asia Travel Sdn Bhd (ATSB) has a permanent establishment in Germany under the double tax agreement between Malaysia and Germany. (6 marks) (b) Assuming that ATSB does have a permanent establishment in Germany, explain: - the significance with respect to the company's liability to tax in Germany; - how much of its income is potentially involved; and - how the potential double taxation by both Malaysia and Germany will be resolved. (6 marks) (c) As regards the income and expenditure relating to the tours in Germany, justify: - whether the income from the tours conducted in Germany is derived from Malaysia; - whether the salary and living allowance payable to the liaison representatives are tax deductible in arriving at the adjusted income of the tour business in Malaysia. (8 marks) (d) With reference to the four Malaysian liaison representatives, justify whether their income from employment is derived from Germany, or Malaysia, or both. (5 marks)